Spring Statement

Lord Leigh of Hurley Excerpts

Wednesday 20th March 2019 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, it is an honour to follow the wide-ranging speech of the noble Earl, Lord Lytton. I welcome the chance to contribute to today’s debate, in which we are asked to take note of the economy in the light of the Spring Statement. It is important that we take note of it; with everything else that is going on and the demands on our time with regard to exiting the European Union, we are in serious danger of missing some good economic news. As we size up our European past, present and future, it is important not to lose sight of our current economic position and its not inconsiderable strengths.

To name but a few of those, there are record numbers of people in work, household spending has never been higher, inequality is in retreat—and, of course, the deficit is at its lowest level since 2003. That is evidence, if any more were needed, that so-called austerity need not be regressive. Indeed, it is proof that the worst thing that we, as economic stewards, can do for the least well-off, is to run high deficits. There is nothing progressive about spending more and more of our national income on debt interest instead of public services.

We are meeting on a day when Toyota has announced further investment in Derbyshire, and the opening of a new production line. I believe that we have had more quarters of successive economic growth than any other G20 country, and, unusually, our FDI has gone up, as opposed to that in Europe, which went down in 2018.

I am sorry that the noble Lord, Lord Macpherson of Earl’s Court, is not in his usual place, because I do not know whether he would agree that in economic matters—or, rather, fiscal matters—there are only two statistics we can rely on. These are, first, tax receipts—hard cash—which are currently at record levels, and, secondly, the proportion of unemployment claimants, which, for the first time in decades, is lower than 4%. Coupled with real wage growth of 1.3%, that represents good news.

Critics who carp that those are lagging, not leading, indicators should note that the OBR has predicted that employment is expected to rise over the next five years, with the number of people in work rising to 33.2 million by 2023. It clearly does not see a change of Government on the horizon, as we know that no Labour Government have left office with unemployment lower than when they started.

I shall highlight some specific areas of note from the Statement. The Chancellor continues to highlight productivity. Indeed, he refers to low wages and low productivity as “twin demons”, and mentions the importance of the £37 billion National Productivity Investment Fund in helping to tackle those problems. This is an important issue, but I still wonder whether we will ever get to the root of it until we modernise our interpretation of productivity itself. After all, services, now the mainstay of our modern economy, are, in my opinion, not properly accounted for in the productivity statistics.

I have never been happy with the statistics that measure productivity as output per hour, because they fail to recognise total output, which for us is very good. Moreover, as we have full employment, we will use less productive labour. So our productivity will appear low even if that is not really the case. I say to the Chancellor, and to my noble friend the Minister, that we should not allow our opponents here or abroad to criticise our productivity levels unfairly, or unchallenged.

It is also worth highlighting measures that recognise the importance of Britain as a trading nation, open to talent and open for business. Putting an end to landing cards, as the Minister mentioned, and allowing passengers from key partner countries, particularly the United States, to use e-gates, is really important, and complements the new measures to support UK Export Finance. In particular, the general export facility, which allows UKEF to support the working capital requirements of exporters as companies, rather than just for specific projects, will have a big effect. I hope that such measures are just the beginning: we need to do more, and communicate better the support on offer for exporters, and, of course, inward investors.

Like the noble Lord, Lord Wakeham, I shall refer to the papers published by the Chancellor with the Spring Statement on tax issues, particularly avoidance and evasion, which remind us that HMRC reckons that some £900 million spent in 2010 is estimated to have brought in an additional £7 billion of revenue. The report then lists some of HMRC’s successes in fighting evasion, which I applaud. For the record, I take issue with its definition of tax avoidance, which it describes as “bending the rules”—but I totally agree that contrived and artificial schemes must be stamped out

That takes me to my final, and familiar, subject: VAT and online fraud. The Spring Statement gives important context, with a new strategy document from HMRC. This report cites a VAT tax gap of £11.7 billion for 2016-17. Yet the UK Alliance of Online Retailers suggests that the £205 million in VAT collected from overseas sellers is only 7% of what should have been collected. This suggests that current measures in place to combat fraud are not working.

For example, presently, HMRC applies “seller checks” to overseas sellers but not to UK ones. This is particularly relevant to online sellers and has led to literally thousands of overseas sellers registering as UK sellers, knowing that online marketplaces do not check whether the seller is actually the legal owner of that business name and the associated VAT number. In other words, fraud is going on under the noses of the likes of Amazon and eBay and they are taking no action. Meanwhile, the Exchequer loses out on considerable revenue and genuine UK sellers are punished.

Does the Minister agree that the solution is to get these online marketplaces to take more responsibility? First, they should collect VAT themselves and, failing that, HMRC should copy the German model whereby the sellers cannot trade without a VAT compliance certificate, which comes only after VAT returns and import invoices have been properly reviewed by HMRC. Furthermore, all anti-money laundering legislation should apply to online market places so that all business details are properly displayed and verified. HMRC’s statement is to be welcomed in the round, but in this instance we can do more with some relatively simple interventions.

I hope your Lordships agree that it is important that the UK builds on its strong economic fundamentals, demonstrated again by this year’s Spring Statement with measures that support our status as a trading nation. However, as in the case of online VAT, there is also an opportunity for the UK to play a leadership role in setting out new approaches and standards for the challenges posed by a globalised digitalised economy and not allowing competitive pressures to conflict with a sense of fairness and standing up for the rule of law.

Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019

Lord Leigh of Hurley Excerpts

Monday 18th February 2019 Lords Chamber

[The Earl of Kinnoull (CB)]

My Lords, I remind the House of my interests in financial services, particularly in international financial services for quite a long time.

Many of the speeches in this debate have given the Government a poor grade on things. However, it is important to remember business, which is at the centre of this. I always find that there is some confusion about what equivalence is. For financial services, there are 11 directives or regulations which give rise to powers to grant equivalences, 35 countries have taken advantage of that, and 279 equivalences have been granted—those are the figures from October on europa.eu. I gave evidence in respect of one of those 279 to try to get an equivalence for Bermuda—a successful achievement—some years ago, so I am very familiar with the process and also extremely familiar with how important it is for international business to have that equivalence.

The areas that are covered by equivalence, where obstacles and barriers are lowered or removed by granting it, include: accounting and auditing; capital requirement measurement; risk exposure measurement; and reliance on other markets’ regulators that reduces the amount of senior management time that is taken up, making sure that regulators feel comfortable with whatever the business is that you are running within their regulatory environment. It is therefore very important indeed that we have this instrument in place, if there is a disorderly Brexit, in the first instance. I agree with many of the points that have been made about how the Government’s performance has not been that good on this, or indeed on other statutory instruments. However, this is vital for business and is a key part of our economy, so I hope that the House will hurry it through.

[Lord Leigh of Hurley (Con)]

My Lords, I welcome this statutory instrument. I note that paragraph 77 of the consolidated impact assessment states:

“This does not remove the general need to review and improve legislation, which HM Treasury remains committed to doing in due course and where appropriate”.


Following the debates we had on the Financial Services (Implementation of Legislation) Bill, there are areas which might improve the financial services community and be for the benefit of the public and companies seeking to raise capital without the confines of some EU regulations; in particular, for small companies and for existing public companies that are seeking to raise capital from existing shareholders. At the moment, due to the expensive costs of a prospectus, they are prohibited from so doing. Although I have never prepared an impact assessment, I cannot imagine how one can be prepared in this sector, because there are so many potential benefits that might arise from this. I refer your Lordships’ House to my registered interests.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I too declare my interest in the register with regard to the London Stock Exchange.

I will make a couple of points on specifics, but before that I will say that I agree with noble Lords who have spoken about the manner in which things have had to be done and are done, rather than possibly what is done. By and large, the Treasury has performed well in fixing what it has to fix, but it has fallen down, possibly through lack of time, sometimes on Explanatory Memoranda and definitely on impact assessments. One of the things is that the public hardly seem to appear in the commentary. When the Minister introduced this statutory instrument, he said that equivalence was beneficial—it is in several ways—because for one thing it aided competition. He then said that that was to the benefit of consumers. That was about the only reference to consumers.

If prudential requirements are lower, does that benefit the consumer? It surely does in one sense: if the costs to businesses are less, perhaps the services to the consumer are less, but what does that do for stability? There are lots of questions about that, and the whole scene is not set. If I may say so, I may be the only person who was in the room when every one of these equivalence provisions was put in place, so I know why they are different, but it is still very difficult on some of the other SIs that we are dealing with even for me to work out exactly what is going on.

Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019

Lord Leigh of Hurley Excerpts

Monday 18th February 2019 Lords Chamber

[The Earl of Kinnoull]

Yes, I am sorry, we have now decided that they are distinguished lawyers—and others of the huge number of advisory people in London who help people get access to capital. There were a lot of notes in November and more in December, and what is interesting is that they have all been positive on this SI. So I am not sure what a full consultation would have produced in excess of the current SI. Anyway, that is what we have, and I very much hope that it too will sail through shortly.

[Lord Leigh of Hurley (Con)]

I very much agree with the noble Earl, Lord Kinnoull. His remarks were spot on. This has been around for some time, everyone in the industry is adamant that it is necessary for ongoing financial services success, and there is no quibble about its importance. The only quibble that I might have with the noble Lord, Lord Adonis—who has explained that he is not a financial services expert—is about what he was focusing on in note 10: the underestimate of 2,113 firms having to bear the cost of £700 each. Of course, the £700 is calculated assuming that firms will use lawyers at £330 an hour in each and every case. I can assure noble Lords that my firm, for one, will not be.

Financial Services (Implementation of Legislation) Bill [HL]

Lord Leigh of Hurley Excerpts

Report stage (Hansard): House of Lords
Tuesday 29th January 2019 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I thank the Minister for a good set of amendments that respond across the piece to concerns that were raised in Committee. I shall probe a little further on what can and cannot be done for the purpose of clarification.

Clause 1(1) states that this is about converting,

“the provisions, or any of the provisions, of any specified EU financial services legislation”.

So the option is still there not to convert it or to convert only parts of it. At an earlier stage, I suggested that that could be adapted. I noticed that when the Minister spoke, he used the word “files” as if the files were all transposed at once, but we must recognise that some things may not be transposed. I believe that is the intention. Here, I should give my usual reminder to the House of my interests as set out in the register, in particular as a director of the London Stock Exchange. In the first set of EU legislation—that which is completed but not yet active—you could still omit some or all of it and do an EU-type adaptation, but you could not adapt it if you chose to convert it. It has got to be relatively straightforward.

For the not yet completed, there is greater flexibility. I have a few little tests of my own to see whether this would be allowed. First, what if you wanted to keep a current provision instead of having a new one? That is quite simple: you probably just leave it out and do not convert it, which falls within what is allowed. If you want to reflect more closely an international standard—let us say that the EU has embellished it in some way—could you do that? I think you probably could because you are still going back to the originating international standard, but it would be interesting to hear what the Minister has to say about that. What if you want to reflect more closely UK market data because it has been calibrated on EU data, by then absent us? I expect most of that happens in technical standards, but it would be interesting to have the Minister’s view on whether the Government could make such a change. I think it would be allowable.

What about aligning with alternative provisions made in other major international markets? That would be departing from alignment with the EU into alignment with somewhere else. Let us say that you wanted to align tick sizes with Hong Kong or the US, rather than staying with the EU regime. Would that be allowed? I think that is quite a marginal issue. The Minister does not have to use that particular example, but it would be interesting to know where that would lie in the tests. If you want to avoid disrupting the functioning of UK markets—the sort of comment you often hear—you are probably left with the option of not converting that element.

My final test is, what happens about proportionality for SMEs and SME markets? I am not sure how that would work out: if the legislation has not included proportionality, is it reasonable and within scope to put some proportionality in? That measure is probably relatively popular from a UK perspective, so it would be nice to know whether that could be covered.

[Lord Leigh of Hurley (Con)]

My Lords, I too refer to my declaration of interest in the Members’ register, which has not changed since I last spoke. Despite my interest, I confess that I had some difficulty understanding all of subsection (1A)(b) of the proposed new section. The noble Lord, Lord Sharkey, read out the easy bit. The difficult bit is the words,

“but does not include changes that result in provision whose effect is different in a major way from that of the legislation”.

I think I understand the intent, but I am not sure that the words are exactly as another draftsman might have chosen to put it.

I am today looking for an assurance from the Minister that the adjustments he proposes will allow the Government the flexibility needed: in particular, if there is a restriction on changes that might be significant or major, that these will not bite where change really is needed if we leave the EU with no deal. As the noble Lord, Lord Davies of Oldham, has said, this legislation will come into play only if we have left without a deal—which nobody in this House seeks as a primary option—and in those unfortunate circumstances, we might need to be as flexible as possible.

By way of example, in respect of article 2(e) of the prospectus regulation, the alleviations granted by the EU were a compromise designed to suit all member states’ markets, all of which are very much smaller than the UK’s. The Government should adjust these to make them proportionate to the scale of the relevant UK markets. For example, the threshold below which public offers—an area I am particularly interested in—are exempt from the requirement to publish a prospectus, which is a huge cost, has been set at €8 million. By the way, initially it was agreed to be €2 million, then it went up to €5 million without any issues and then it became €8 million. For the UK market alone, a more appropriate level might be, say, £20 million.

The noble Baroness, Lady Bowles, referred to the definition of SME growth markets, which is a very important term. The definition was of course a compromise designed to suit all member states’ markets, and to avoid in some instances classifying members’ entire national stock market as an SME growth market, which would be a bit unfortunate. Perhaps the Government want to adjust this to make it proportionate to the scale of the relevant UK markets, possibly increasing the maximum market capitalisation from €200 million to £500 million.

Outside of article 2(e), I have mentioned at earlier stages of the Bill some issues relating to CSDR settlement discipline which are perhaps inappropriate and, in some cases, highly damaging to the unique, quote-driven liquidity provision of the UK’s SME market. I hope that I have satisfied the noble Baroness, Lady Kramer, that short selling in those markets is not damaging or dangerous to the UK economy. This would not apply to EU-based dealers, thus putting UK market makers at a competitive disadvantage because it would apply to them.

I hope the Minister can assure me that the Government will retain the power to have the flexibility needed to allow the UK to set its own rules for our financial services market, which is very different from the EU’s. I appreciate that this provision applies only in respect of in-flight rules but it sets the tone, and hereon in we will want to create our own bespoke laws, which may well diverge from the EU’s but will be more appropriate for our market. Rather than just hanging around hoping for some small alleviations in the circumstances of a no-deal Brexit, we really will need to act in a way that suits us in these areas.

[Baroness Kramer (LD)]

My Lords, I am very grateful not to be the Minister, who has to respond to my noble friend Lady Bowles and the noble Lord, Lord Leigh. I can see that it is a challenge and I hope that if I talk for a few minutes, it will give the Box a little more time to get notes to him.

I think that the House knows that my underlying question has always been how we draw the line so that we know when it is appropriate for change to be carried through by an SI and when it should come to this House as primary legislation, particularly in this field. What happened in the weeks and months immediately following a no-deal exit would shape whether we were in a position to maintain access to the EU market for our most significant industry—the services sector—and indeed for the economy as a whole. I think that in the changes he has made the Minister has got us to a better place and to a much clearer understanding of the Government’s intent. If he wanted to split the difference, he could say “major or significant” and deal with the problems all in one go.

I want to say how much I appreciate the listening that the Minister did and how much we appreciate the listening, thought and effort that his officials put into responding to the queries and issues that we raised. It gives me the feeling that we in this House, including the Government, are all essentially on the same page in understanding the significance of the period that would follow no deal and how carefully and sensibly we would have to approach regulation in the financial services area because of the potential knock-on impacts and unintended consequences, which could be extraordinarily severe.

With that sense that the Minister understands when an issue should be brought to the House because it is a fundamental change of policy and critical to an underlying key sector of the economy, and when it is an issue that can rightly be dealt with under a statutory instrument, I can say that I am very happy with the changes that have been offered and, again, I thank the Minister for them.

Financial Services (Implementation of Legislation) Bill [HL]

Lord Leigh of Hurley Excerpts

Committee: 1st sitting (Hansard): House of Lords
Tuesday 8th January 2019 Lords Chamber

Moved by

[Lord Leigh of Hurley]

9: Clause 1, page 1, line 11, at end insert—
“( ) It is an objective of the Treasury, in exercising its powers under this Act, to ensure—(a) that financial markets in the United Kingdom and their participants are in no worse competitive position than if the United Kingdom had not withdrawn from the EU, and(b) that financial services regulations do not impose a disproportionate burden on small listed companies.”

[Lord Leigh of Hurley (Con)]

My Lords, at Second Reading this Bill was slated as a technical, tidy-up, hypothetical Bill. It has proven much more interesting than that. I remind your Lordships of the declaration of interests I made at Second Reading, predicting it would happen the following day. With my noble friend Lord Bates’s best wishes it did, so I am now a deputy chairman of an AIM-listed financial services company. Although I have made the declaration, it is not yet on the website, so I repeat it in Committee.

At Second Reading my noble friend Lord Bates said:

“In the event of leaving the EU without a withdrawal agreement and without a future economic partnership the UK will not countenance accepting EU laws wholesale. It will therefore be vital to ensure that any legislation implemented in the UK can be adjusted to work best for the UK markets outside the EU in a no-deal scenario”.—[Official Report, 4/12/18; col. 935.]


I agree. It is important, both for the continued success of UK financial services and for the maintenance of equivalence with the EU post-withdrawal, that the competitive position of the sector is not adversely affected by the implementation of EU legislation.

The thrust of my remarks on the first part of the amendment is that transcribing EU legislation directly into UK law does not necessarily have the same result as if the UK were still part of the EU. It can in fact produce perverse and unintended outcomes. The best way of explaining this is by the example of the aforementioned central securities depositories regulation, CSDR. Leaving the EU will make the UK a third country under that regulation, so CSDR settlement discipline will not apply to EU dealers trading UK shares. But if we merely duplicate the CSDR in UK legislation, settlement discipline and the associated fines may be imposed on UK dealers trading UK shares in their own domestic market. That would leave the UK financial services participants at a competitive disadvantage to their EU peers while they are trading in the domestic UK market—clearly a nonsense. It illustrates why each piece of in-flight EU legislation should be considered separately, and why the Treasury should have the objective and power to amend each one appropriately, to ensure that the playing field remains at least level and that financial markets in the UK and their participants are not in a worse competitive position than if the UK had not withdrawn from the EU.

--- Later in debate ---

[Baroness Kramer]

My Lords, I have to say to the noble Lord, Lord Deben, that every alarm bell went off in my head when I heard the noble Lord, Lord Leigh, basically argue that this would be a route to get naked short selling on AIM. This is essentially a mechanism that will allow people to enter into contracts which they know if they had to fulfil they would be very unlikely to fulfil—talk about risk. That general underlying principle worries many of us who think that a less speculative financial services industry is, in the long run, much more sustainable than a far more speculative financial services industry. That is exactly the point. It is people selling short shares that they will not be able to buy if they are ever forced to close on the contract.

[Lord Leigh of Hurley]

With great respect, I must say that that is not the situation in respect of the AIM market. This is where market-makers who are bound to make a market respond to requests for specified sums or amounts of shares with quoted prices. I think that the noble Baroness is talking about a different type of short selling.

[Baroness Kramer]

I thought that the noble Lord described naked short selling, which I thought I just defined. Anyway, I am nervous about the idea of policies such as this. There will be enormous pressure to use this opportunity, where the Treasury alone is the decision-maker, basically to loosen the regulatory structure that we have in the UK. That issue is a fundamental one for Parliament.

I would say to the noble Lord, Lord Hodgson, who talked about the need to find the appropriate place and that it is good that we can have those discussions with the Treasury, to have them with Parliament because there is another side to the argument. One reason why the UK been spectacularly successful as a financial centre is because the regulatory environment in which it functions is considered by many to be a global gold standard. If the noble Lord goes to countries such as China, India or other places, the level of trust and respect in financial institutions that are framed within those EU parameters—he could say it is foolish or sensible—is very high. It annoys the United States to heaven and beyond because so often it has loosened its regulatory standards but has not seen the business shift out of the EU into the US.

If you talk to companies, part of that reason is the reputational issue. For many companies, to be able to turn to clients and say, “I operate in the gold standard regulatory environment which means that you can trust me and what I do”, is so key to the future of their business that clients will reply, “If there is a significant loosening of standards, it might in the short term increase my profits but in the long term it will damage my regular relationship with my client base and I will need to move to the place that carries that gold standard kitemark”. Losing the kitemark is significant. That is something that this House and the other House should consider and should not be simply left to a conversation between the industry and the Treasury. It backs up our whole argument that this Bill, by transferring all those decisions simply to statutory instruments, is running into very dangerous territory.

--- Later in debate ---

[Lord Bates]

My Lords, I again thank all noble Lords who have taken part in this debate, particularly my noble friend Lord Leigh. His amendment touches on the critical point with regard to the Bill, which is the importance of safeguarding the competitiveness of the UK’s world-leading financial services industry as well as maintaining proportionality in the regulations that govern these markets. These are two of the key reasons this Bill has been introduced. It will ensure that our regulatory system remains up to date in the period following a no-deal exit and that UK firms are not left at a competitive disadvantage as regulations are updated in the EU. I can of course assure my noble friend that the Treasury will exercise its powers under this Bill with competitiveness and proportionality firmly in mind, which my noble friends Lord Flight and Lord Hodgson encouraged, and which my noble friend Lord Deben urged it to do.

When people are talking about the market in the City, people instinctively think of very large institutions, but having worked in the financial services industry, I recognise that it is made up of many small firms delivering outstanding benefits and value to their clients. There are some 58,000 small and medium-sized businesses operating in financial services.

In answer to the points raised by the noble Lord, Lord Adonis, the reason the UK is so successful and the City of London so respected around the world is the strength of the regulatory basis. Reputation and trust are all when it comes to conducting financial services. If people are investing their life savings or pensions with organisations, they need to have confidence that the organisations they are investing in will look after them well and that they will get the return or benefit that they anticipate.

I therefore appreciate my noble friend’s helpful and well-intentioned amendment. However, I am mindful of the difficulties of placing these assurances on a statutory footing, given the difficulties of defining these terms clearly in legislation. In particular, judging the exercise of powers against a hypothetical case—for example, the state of the UK financial market had the UK not left the EU—would be highly challenging. It is also worth noting that many of the files are themselves being designed, with the UK’s input, at the moment, to aid competitiveness and proportionality issues. It is right that we put that on record at this point. My noble friend Lord Leigh set out clearly at the beginning that we pay tribute to the work of the Commission in listening to the voice of small business, a point to which my noble friend Lord Deben returned. Examples are the prospectus regulation listed in Clause 1, which creates a more proportionate regime for all firms, including SMEs, and key measures such as the introduction of a new growth prospectus—a lighter, less burdensome document—to be used by SMEs within the regulation. I hope my noble friend will recognise that the Government are alert to his concerns in this area and support the need to maintain the competitiveness of the UK financial services industry and to ensure that any regulatory burdens are applied to small and medium-sized enterprises in a proportionate way. In the light of these reassurances, I hope my noble friend feels able to withdraw his amendment.

[Lord Leigh of Hurley]

I thank my noble friends Lord Flight and Lord Hodgson for supporting this amendment. They have become the wise old birds. I was very pleased to have two people supporting this amendment who have started financial services businesses in London and grown them to be global financial services businesses. It goes to show the power and expertise that resides in this House.

I thank the noble Lord, Lord Adonis, for his comments. I am sure he was not seeking to stereotype Tories. Curiously enough, although many people would regard captains of industry as natural Tories, one finds that the large multinationals are the companies that want more, not less, regulation because it consolidates their position. From the perspective of small businesses, as the noble Lord, Lord Adonis, said, we look for more appropriate regulation, rather than less regulation.

I am very grateful to him and to my noble friend Lord Bates for picking up my complimentary remarks about the EU Commission. I am a bit worried that I will be drummed out of the ERG after this. Nevertheless, it is true that the Commission has listened. My worry is that it listened to us because we had a voice. However, if we leave under a hard Brexit, we will not have a voice through bodies such as the QCA and therefore, because it does not really understand AIM and other aspects of the financial services industry in London, it will produce inappropriate regulation. We will need a very effective and immediate reaction to that, which I believe the Treasury is capable of doing.

I say to the noble Baroness, Lady Kramer, that the naked short selling by market-makers in the AIM market is essential to liquidity. It is not to be confused with naked short selling by hedge funds, which is a very risky and different proposition. It just goes to show that it is a complicated area. I will be honest: I am not wholly sure that I understand it or how it works but I understand that much—that it is essential to liquidity.

The noble Lord, Lord Tunnicliffe, is right. Essentially this is about unintended consequences; none the less, it is always nice to get into legislation protection for the financial services sector and small businesses.

With the very welcome reassurances from my noble friend Lord Bates, I beg leave to withdraw the amendment.

Amendment 9 withdrawn.

Financial Services (Implementation of Legislation) Bill [HL]

Lord Leigh of Hurley Excerpts

2nd reading (Hansard): House of Lords
Tuesday 4th December 2018 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I am pleased to speak today on this short, technical, perhaps not that exciting Bill, and thank my noble friend for his briefing earlier. I recognise that some will say that this is a belt-and-braces Bill to cover the very unwelcome possibility that we leave the EU on 29 March with no deal. I say that it is unwelcome not because I think that the UK cannot or will not flourish as an independent nation state outside the EU but because I really do not think that we will be ready at that time. I note that the Government recognise that, in those circumstances, only appropriate legislation will be brought in and then, importantly, it can be adjusted to suit us.

My position in supporting the Government and speaking for their proposals for the deal later this week is set out in an article I have written for today’s City A.M., so I will not bore the House further with my views on it.

I draw your Lordships’ attention to my interests in the register and to an entry which, for good reason, is not in it yet but which I ought to declare. I am, today, the senior partner of Cavendish Corporate Finance LLP, which will merge with finnCap Group PLC tomorrow. All being well, our first day of dealing on the AIM market starts at 7.30 am. So, as deputy chairman of an AIM-listed company, I have a vested interest in the operation of the market and will address some issues which are covered as specified EU financial legislation, which this Bill seeks to bring in on or after exit day.

The stated purpose of the power is,

“ensuring the Government can implement legislation which reflects the interests of the UK market and its participants”.

The House of Lords Delegated Powers and Regulatory Reform Committee criticised the similar powers contained in the European Union (Withdrawal) Act for giving what it called,

“excessively wide law-making powers to ministers”.

However, given the Bill’s stated purpose of ensuring the Government can implement legislation which reflects the interests of the UK market and its participants, it is both necessary and proportionate to allow Ministers to make,

“any adjustments the Treasury consider appropriate”,

so that the Government can make positive improvements to the proposed legislation for the benefit of the UK market and its participants, rather than just correct deficiencies, as the EU withdrawal Act allows.

Regulators and regulation have tended to focus on the largest and most visible markets but should address the whole of the UK financial markets, not just the FTSE 100, many of whose companies are multinational. The major public markets are just the visible tip of the iceberg, part of a broad financial ecosystem which supports the financing of and investment in UK businesses. Government should consider the impact and potential unintended consequences on the broader system before implementing EU legislation.

An important aspect of this broader system is the financing of small and medium enterprises. I am, of course, delighted to see that the Government support the aims of the SME growth market regulation proposals, to support the ability of SMEs to fulfil their financing needs on UK public markets through the reduction of administrative and financial burdens.

In this context, we need to consider the potential negative impact of the central securities depositories regulation, CSDR, and the related delegated cash penalties regulation, DCPR, on the provision of liquidity, which is so important for markets for small and medium enterprises, such as the London Stock Exchange’s AIM market. AIM is by far the most successful SME growth market in Europe. The EU does not have the same sort of experience or success as we do. Part of this success is due to the quote-driven nature of the market, with market-makers committed to providing liquidity at all times during market hours.

However, the CSDR introduces a new settlement discipline regime, under which trades not settled at an agreed time will face daily fines until they are. These fines will pass along the chain of settlement so that only the initial failing part of the settlement chain will pay. This will always be the liquidity providers, which are the market-makers, as they are the only type of participant permitted to sell shares they do not own—known as naked short sell—under the short selling regulation. Liquidity providers are thus fined for providing liquidity in periods when demand outstrips supply: in other words, for performing the specific purpose for which they exist. Penalising formal liquidity providers for not settling trades on time will lead to those very liquidity providers reducing their activities in smaller company securities in order to avoid these additional costs. This will lead to a further reduction in companies’ liquidity, thereby reducing their access to funding on public markets.

In addition, introducing a regulation to impose a fee appears to contradict the stated limitation of the power. The Government have committed to undertake extensive engagement and co-operation with key stakeholders throughout the process. In order to include views relevant to the broader market, this should include bodies representing smaller companies seeking funding for growth, such as the Quoted Companies Alliance, which has been of assistance to me with my remarks, and the ScaleUp Institute.

I hope that we do not need any of these measures, but I am happy to support the Bill in case we do and hope it provides a focus for the Government in their regulation of the SME market.

Economy: Budget Statement

Lord Leigh of Hurley Excerpts

Tuesday 13th November 2018 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, it is, as always, a great honour to speak in what has become one of our great set-piece debates and to follow such distinguished contributors, not least my noble friend Lady Neville-Rolfe—I agree with much of what she said—and the noble Lord, Lord West of Spithead, who is not in his usual place. I was disappointed that, in his wide-ranging speech on the economy, he did not mention the enormous success and impact of the “Queen Elizabeth” visit to New York, marrying defence and the economy.

I draw your Lordships’ attention to my entry in the register of interests, not least that I am a member of the Chartered Institute of Taxation. Your Lordships will be pleased to know that I last gave tax advice in 1988—some say the recipients are still suffering.

None the less, the Budget gives me great cause for optimism, not least because of one seminal phrase, which my noble friend Lady Neville-Rolfe mentioned, in its opening paragraph. It says that higher productivity remains the only path to sustainable growth and rising living standards. The gravity of this statement should give us pause, as well as a lens through which to view this Budget, to see whether its contents reflect it.

On productivity, I see two aspects. One is that we should provide, where possible, a much needed direct boost to the UK, whose productivity, at first glance, tends to compare unfavourably with that of some of our competitor nations. The second is the vital issue of how we measure it. On the first aspect, unlike some speakers this afternoon, I see much to be optimistic about, not least the National Productivity Investment Fund, which the noble Lord, Lord Gadhia, mentioned. This will provide a £37 billion boost to areas in chronic need, which have historically been subject to underinvestment in housing, transport, digital infrastructure and R&D. However, I commend the Government on what is now a long-standing commitment to R&D that has seen science largely protected from budget cuts.

But let us not kid ourselves. Productivity in the UK is also low due to the cheap labour we have had for many years. This will change after Brexit, and hopefully wages will rise—not a bad thing. Business will, as a result, invest in AI and labour efficiencies. I have been to many factories where migrant labour is predominant and where dedicated, hard-working, wonderful people give their best but perform low-paid, menial tasks. These should and must be mechanised to improve productivity as we currently define it, on an output-per-hour basis.

I will also speak on two other enablers of productivity: tax and regulation. Before I do, I ask my noble friend the Minister where we are in our quest for better measurement of productivity. We are all guilty of worshipping at the altar of a measure that is surely outdated, geared as it is toward manufacturing, not services, and surely not capturing as well as it might the transition of the UK to a digital economy, which is well under way. It fails to measure the long hours that many, particularly in services in the City of London and elsewhere, give to our economy but that, if anything, yield a lower productivity headline, because it is measured only as output per hour.

I turn now to tax, which is a significant influence on the productivity of businesses. For too long, we have operated in an environment where our economy is global but our tax system is local, with businesses able to exist betwixt and between these two paradigms. As such, numerous measures have targeted abusive corporate behaviour to ensure that tax is properly paid in the location where business activity is conducted. I am pleased to see that profit fragmentation, whereby UK businesses can arrange for UK-taxable profits to be booked to entities resident in lower tax jurisdictions, will be addressed in the Finance Bill, and this corrosive practice outlawed. This will upset our friends in the Office of Tax Simplification, owing to the reams of paper that will be required to put this on the statute book correctly, but it is the right direction of travel. Looking at the tax yield anticipated from it in the Red Book, I suggest that it is a very modest measure. In fact, I understand from sources close to the tech companies that they were expecting a lot worse. I ask my noble friend to encourage the Chancellor to seek ways of increasing the share of tax that these multinational, internet-based entities pay.

Similarly, I commend new legislation to create international disclosure rules on offshore structures that would facilitate tax evasion. This will complement the updated offshore tax compliance strategy, which, the Red Book confirms, is forthcoming. While I accept the tightening of the rules for entrepreneurs’ relief, it remains an absolutely key part of our offer to entrepreneurs, who really are incentivised by this opportunity to make capital to invest in businesses and then to use it to reinvest in new businesses. The implication of the Chancellor’s small tweaks and changes to entrepreneurs’ relief is that it is here to stay. Why not state that publicly to silence the siren voices of certain left-leaning think tanks, largely run by people who have never faced the struggle of starting a business, which call for its abolition and cause so much uncertainty for entrepreneurs? Why not state that entrepreneurs’ relief is here to stay? I have some interests to declare here, as my day-to-day business advises recipients of entrepreneurs’ relief, and some eagle-eyed Members of your Lordships’ House will note that I am personally about to benefit from entrepreneurs’ relief as well.

A short word on regulation, which entrepreneurs tell me is the single biggest impediment to productivity growth. We await the Government’s response to a consultation to look at measures to boost productivity for SMEs. This is a worthwhile initiative and the gains are surely significant. However, I am concerned that, in certain respects, efforts will be undermined by an overzealous approach to regulation, not least in my area of financial services. The Red Book welcomes the FCA’s plans to expand access to the ombudsman for SMEs with a turnover of up to £6.5 million, as well as increasing the award limit to £350,000. The idea is that the ombudsman provides a more effective, and certainly cheaper, form of redress than going through the courts. However, expanding the role of the FOS at a time when questions have been raised in the financial services press over its competence seems premature. Given its status and reach—there is barely any long-stop on cases and no right of appeal against the ombudsman’s judgments—the Government should first reflect on whether it, and the system in which it operates, is really fit for purpose.

This matter should not detract from the broader and more positive narrative emerging from this well-received and welcome Budget for economic growth. I cannot help but shudder at the alternative we might have faced last week if Labour had been in government. We would have been talking today about shutting down entrepreneurs’ relief and BPR, and raising top-rate taxes, ignoring the fact that the top 1% of people in this country pay over 25% of all income tax. To add insult to injury, Labour wants literally to take equity away from those who legally own it and give it to some fuzzy employee group.

In conclusion, in the Chancellor’s Budget there is significant investment going into physical and digital infrastructure, as well as into research. The UK is still the second-largest recipient of FDI in the world and this Budget will make the biggest difference. That will be especially true when we finally update our tools for measuring productivity to make them fit for a modern economy. On tax and regulation, two key enablers, the Government are increasingly playing a global leadership role, with an approach that is rightly optimistic and pro-business but which has fairness and transparency at its core.

Brexit: Border Control

Lord Leigh of Hurley Excerpts

Monday 29th October 2018 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, if we are to change the number of border officers, will the Minister consider changing the passenger survey method of counting immigration, which currently asks 0.6% of people arriving in this country whether they are tourists or immigrants? The answers are not verified, and the statistics produced do not tally with other statistics such as national insurance costs.

[Baroness Williams of Trafford]

My noble friend is absolutely right to raise the issue of getting better and richer statistical data. For the last few years we have been introducing exit checks, which add to the picture of what our immigration and emigration system looks like.

Online Marketplaces: VAT Evasion

Lord Leigh of Hurley Excerpts

Monday 22nd October 2018 Lords Chamber

Asked by

[Lord Leigh of Hurley]

To ask Her Majesty’s Government what steps they are taking to ensure that operators of online marketplaces take all reasonable steps to mitigate VAT evasion.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, the UK is the first country in the world to make online marketplaces jointly and severally liable for VAT fraud committed on their platforms. Since 2016, HMRC has received around 43,500 VAT registration applications from non-EU based online sellers, which compares with 1,650 in 2015.

[Lord Leigh of Hurley (Con)]

This issue is of course important to UK high street retailers which are facing intense competition from Amazon. Does my noble friend the Minister share my concern that HMRC estimates that the loss of VAT through evasion by foreign online supply companies is between £600 million and £900 million? However, despite having the powers to do so, HMRC has not frozen any funds, it has not blocked any listings and it has not seized one item of stock from warehouses where goods from overseas suppliers are stored awaiting dispatch the next day.

[Lord Bates]

My Lords, I congratulate my noble friend on his commitment and consistency in raising these very important issues which the Government recognise. That is why, for exactly the reasons he has outlined, we were the first country in the world to introduce joint and several liability for market sellers. We have issued more than 3,000 joint and several liability orders since they were introduced and the amount of tax revenue, which is the crucial point raised by my noble friend, is expected to increase to £1 billion over the review period leading up to 2023. However, more needs to be done.

United Nations Relief and Works Agency

Lord Leigh of Hurley Excerpts

Tuesday 4th September 2018 Lords Chamber

[Lord Bates]

I am happy to do as the noble Lord requests. UNRWA currently has a deficit of $270 million, which is unsustainable and needs to be sorted out. It relies too heavily on the United States and has too narrow a base of donors; the finances are not there. We understand that it has sufficient funding to keep the 711 schools open this month, but thereafter we are not sure. These are very serious times; as a result the Government are looking urgently at what more we can do in this area. Because of the vagaries of parliamentary timing between the House of Commons and here, I am not sure whether Minister Burt has yet made his announcement about what we might do, so I am slightly restricted in what I can say. However, we will today be announcing yet another increase in funding to meet the shortfall and ensure that people get the support and help that they need.

[Lord Leigh of Hurley (Con)]

My Lords, it is estimated that the number of Palestinian refugees who are alive today who were displaced in 1948 is around 30,000. However, unique to any refugee situation in the world, the United Nations now defines their descendants as refugees, so the total is over 5 million. Does the Minister agree that a solution to this issue is made almost impossible when refugee status can be inherited in perpetuity? We should bring pressure on UNRWA to rehabilitate, rather than perpetuate.

[Lord Bates]

That comes back to the point, raised by my noble friend Lord Pickles, about the importance of peace dialogue and reconciliation. The plight of Palestinian refugees has been experienced at first hand by many noble Lords, including me, and cannot be denied. In Syria they are doubly blighted by the situation there. This is a group of people in urgent need; this country has never walked by on the other side and will not do so in this case.